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Because Startups Create Jobs

Around the country, people are rightfully concerned about the pace of job creation and how it can be accelerated. A quick look back clearly shows the importance of initiatives like the Startup America Partnership in creating jobs moving forward.

Through a series of studies sponsored or published by the Kauffman Foundation, it’s now well established that virtually all net new jobs created from the late 1970’s until the Great Recession were due to new and young firms- those less than five years old. This important fact, as well as the key role played by entrepreneurs in the US economy, also was recognized in this year’s Economic Report of the President.

There’s some data out there that, at first glance, seems to contradict these findings. For instance, an SBA study states that a large percentage of new jobs came from the expansion of existing businesses. But this study refers to establishments, which by definition cover existing and new firms, rather than new firms only, which are the focus of the Kauffman studies.

To be sure, the recession definitely has taken its toll on firms of all sizes: both small and large firms shed hundreds of thousands of jobs from late 2007 to mid-2009. But, additional data from the Census Bureau indicate that net job creation from the opening of new firms has been much more stable than the expansion of existing companies. In fact, during the recession, job creation in new firms fell only slightly, while hiring at existing firms plunged. If not for new companies, job losses would have been even worse—an alarming thought given the steep rise in unemployment.

One other fact that we need to make clear is that the Startup America Partnership is about encouraging high-growth startups in all sectors of the economy. We’re not just interested in helping tech companies or health care companies or any other sliver of the entrepreneurial ecosystem. We’re raising the entrepreneurial game of the United States. Why? Because startups create jobs.